Foxtons estate agency could face large payouts to landlords

London based law firm Leigh Day has announced that it is bringing a group claim against Foxtons on behalf of landlords, in a legal case which could see the London estate agent facing a multi-million pound payout.

The case is being taken on behalf of private individual landlords who have used Foxtons either just to let, or to both let and manage, their property.

The claim is that Foxtons has been charging landlords hidden commissions of as much as 33% of a contractor’s fee for work done on their properties such as repairs, maintenance, electrical safety checks, inventory checks, etc, without obtaining the fully informed consent of landlords.

It is also alleged that the London based estate agent has engaged contractors who charge as much as 2-3 times the market rate in breach of their duty to try to get a good deal for landlords.

Foxtons are also accused of charging tenants various fees that Foxtons does not tell landlords about.

For example, Foxtons currently charges both the landlord and the tenant a £420 inc VAT (a total of £840 inc VAT) fee for arranging for the standard form tenancy agreement to be signed each time a lease is entered with new tenants.

It seems likely that the practice of not getting landlords’ fully informed consent for these types of fees is not limited to Foxtons and may be widespread in the lettings industry.

According to lawyers the potential claims could total as much as £15,000 for landlords whose properties were managed by the company, but that the amount would vary from individual to individual.

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Foxtons’ latest listing prospectus states: “As at 24 June 2013, Foxtons administered 18,716 tenancies and provided comprehensive property management services in respect of 6,174 of those tenancies (33.0%)”

One of the claimants is Dr Chris Townley, a lecturer in competition law at King’s College London, who previously worked as a Principal Case Officer at the Office of Fair Trading.

Dr Townley decided to let out his property in London for the first time in 2011.

He approached several estate agents for valuations and decided to engage Foxtons.

Foxtons let and managed the property for Dr Townley from April 2011 until August 2013 (about 28 months).

At no stage during the engagement process, or subsequently while they were managing his property, did Foxtons suggest that it would receive commissions from any contractors they engaged to maintain the property, nor fees from the tenants.

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During the course of managing the property, Foxtons arranged, with permission, for various contractors to undertake repairs, maintenance and improvements, and inventory checks.

In 2013, Dr Townley became increasingly dissatisfied with Foxtons’ service and complained.

One of the issues Dr Townley was dissatisfied with was the quality of work done by a contractor who had installed a security light at the front of the property following a request by the tenant.

Dr Townley contacted the contractor to complain, and was told that if his complaint was established they would refund him for the work. However, they were only prepared to refund him the money that they had actually received for the work.

Dr Townley had been invoiced £550 for the work, but the contractor explained that they had a contract with Foxtons to pay Foxtons a commission for any work that they received through Foxtons.

The contractors charged £412.50 for the work, but they had added an additional commission onto their fee for Foxtons (as they were obliged to do in their Foxtons contract). This was not set out in the invoice.

Dr Townley started asking Foxtons questions about the commissions and after initially refusing to give details, Foxtons eventually admitted that they had taken a substantial commission on virtually every contractor’s work, totalling 38 commissions and about £1,900.

In many cases the commission was as much as 33% of the contractor’s bill. None of this was identified in any of the invoices or in the accounts that Foxtons gave Dr Townley.

Foxtons refused to repay the commissions, denied any wrongdoing and relied on a clause in their contract that says they may retain commissions taken from third parties.

Dr Townley was very surprised to learn about the commissions, particularly given Foxtons had also charged him an additional contractual fee of 10% + VAT (12% inc VAT) for any invoice that was over £500.

For example, Foxtons had charged the additional fee on the £550 invoice for the security light  (£55 exc vat; £66 inc vat).

But it was only over £500 because of Foxtons’ 33% mark up.

This meant that instead of just paying the contractor about £412.50 for the work, Dr Townley had to pay Foxtons’ additional fees of about £203.50 inc vat – a just under 50% mark-up – with a grand total of about £616 inc vat.

Chris Haan, a solicitor at law firm Leigh Day, said:

“We consider that Foxtons has a potential conflict of interest in that the more expensive the contractor is, the more Foxtons makes in hidden commissions.

“We believe these charges to landlords are unlawful as they are not sufficiently disclosed, so the landlords cannot give fully informed consent to them. This is against industry codes of practice. ”

“These kinds of practices may be widespread in the lettings industry and it needs to stop. We are taking this case on no win no fee with the aim of securing a refund from Foxtons for all affected landlords.”

Dr Townley said “I was incredulous when I found out that Foxtons took commissions from anyone working on my property without my consent. I felt betrayed.”